Fed Sent Roughly $80.2 Billion in Profits to U.S. Treasury in 2017

Remittances from the Federal Reserve to the U.S. Treasury declined for the second straight year in 2017 as rising short-term interest rates weighed on profits, the central bank said Wednesday.

The Fed sent about $80.2 billion to the government last year, and net income totaled $80.7 billion, an $11.7 billion decline from 2016, according to preliminary results of the Fed's annual financial statements. The decline, which has been anticipated, was primarily the result of higher interest payments the Fed made to banks on the reserves they park at the central bank. Those payments, which increased $13.8 billion in 2017, will continue to go up as interest rates rise.

Continue Reading Below

The increased interest on reserve payments were partially offset by higher interest income on securities in the Fed's System Open Market Account, which rose $2.5 billion to $113.6 billion last year.

The Fed said the figures released Wednesday are preliminary and could be adjusted when its audited financial statements are released in March.

Remittances to the Treasury grew substantially in the years since the financial crisis along with the size of the Fed's balance sheet, thanks to a series of bond-buying programs the Fed launched to try to stimulate the economy.

The Fed earns interest on those bonds as well as income from other sources. Under law, it uses the revenue to cover its own operating expenses and sends the rest to the Treasury's general fund to help pay the federal government's bills.

The payments peaked in 2015 at $97.7 billion, but began declining after the Fed raised interest rates in December 2015 for the first time in nearly a decade. Fed officials raised rates once in 2016 and three times last year. They also began the process of shrinking the central bank's massive portfolio of bondholdings -- a move that could further reduce the income it sends to the government.

Advertisement

Officials have said they expect to raise rates three more times in 2018, and twice in 2019.